Following the right track

Auto manufacturers and property and casualty insurers recently joined forces at the AIM 2000 Conference held in Mississauga to combat cost-pressures and identify means

of better serving their customers. Highlighting the agenda were the use of research, design and rating systems to reduce claims costs and reward safer designed vehicles.

Insurers and auto manufacturers need to take the high road, join forces and find ways to reduce costs, panelists urged at the recent AIM 2000 Conference. Lengthy repairs, auto theft, and injury rates need to be addressed as priorities through research and design, a process several carmakers and insurers are now involved in.

Antonio Estrada, managing director of Spain’s MAPFRE Insurance, says his company reduced property claims costs 18% through auto repair research facilities. Insurers need “real proof” of the costs, times and methods of repair work, he says, and should become actively involved in research to achieve “faster and cheaper” repair services.

The high cost of repair work, and its toll on claims costs, is on the minds of many insurers. Jack Zacharias, president of Manitoba Public Insurance, says insurance companies and auto manufacturers have not done “a great job of meeting [the customer’s] needs”, and points out that repair costs are among the cost burdens shouldered by policyholders. There is “no price leverage” for consumers because of “middle men” like repair shops. Speculation that insurance companies could buy out repair shops and other suppliers to gain control over claims costs, mirrors the actions of auto makers such as Toyota, which is actively expanding its own repair business. Insurers could also become involved in opportunities for collision repair shop consolidation, points out Brent Johnston of McKinsey and Company management consultants. Johnston says the trend in the U.S. for bodyshops to merge as a result of low profit margins will likely move into Canada and insurers could take advantage of this either through ownership or strategic partnerships.

Recycled versus OEM parts

Recent litigation in the U.S. over the use of recycled parts in repair work brought reaction from both the insurance and automotive communities. Toronto Sun consumer columnist Maryanna Lewyckyj says the debate between aftermarket and OEM parts “should be on the front burner”, and a reliable independent standard is needed. “I would hate to think insurers in this country were waiting for U.S. courts to make the decision.”

The use of recycled air bags as replacement parts will not go away, predicts Zacharias. Testing carried out by the Insurance Corporation of British Columbia (ICBC) shows recycled bags do not perform significantly worse than new bags. Auto manufacturers, however, appear unconvinced. Jim Miller, senior vice president of corporate affairs for Honda, calls the idea of using recycled air bags “alarming”. In response, CGU claims adjuster Wendy Hillier notes that, despite the higher cost of OEM parts, “we are not prepared to compromise [by using recycled bags]”. But, with air bag replacement costing insurers millions of dollars each year, and becoming an ever-larger portion of repair bills, this once “strictly verboten” topic has to be addressed, stresses John Gane, manager of vehicle safety and design for ICBC.

Auto theft

The Canadian Vehicle Research Council (CVRC), which represents 95% of the country’s auto insurance market by volume, is currently looking at aftermarket parts and recycled bags. CVRC’s goal is to co-ordinate research and set national standards, including the recent anti-theft device standard used by the Vehicle Information Centre of Canada (VICC).

In that respect, insurers are being encouraged to offer reduced rates to customers who have VICC-approved systems installed in their vehicles, says VICC president Henning Norup. Given that VICC member companies have paid out $600 million in auto theft claims, a cost which is passed on to consumers, he thinks there is ample encouragement for insurers to offer the recommended 25% off comprehensive coverage premiums. And, while auto manufacturers are not required to install VICC-approved systems, Norup points out that five of the major manufacturers are already doing so.

Jim Kenzie, host of AutoMotion and automotive reviewer for the Toronto Star, says consumers who invest in vehicle anti-theft devices should be rewarded. “There has to be an economic incentive there.”